City of Milwaukee Policemen s Annuity and Benefit Fund

Transcription

1 City of Milwaukee Policemen s Annuity and Benefit Fund Actuarial Valuation Report As of January 1, 2014 June, / C8253RET PABF.doc

2 June 17, 2014 Annuity and Pension Board Employes Retirement System of the City of Milwaukee 789 N. Water St., #300 Milwaukee, WI Members of the Board: This report presents the results of the annual actuarial valuation of the assets and liabilities of the Policemen s Annuity and Benefit Fund of Milwaukee (PABF) as of January 1, 2014, prepared in accordance with Chapter 36, Part 15(15) of the Milwaukee City Charter. The valuation takes into account all of the promised benefits to which members were entitled as of January 1, The valuation was based on the actuarial assumptions and methods as adopted by the Board of Trustees, and as specified by the Charter. Actuarial Standards of Practice now require that the likelihood and extent of future mortality improvements be considered for valuations performed on or after June 30, We have reflected future mortality improvements in this valuation. Assets and Membership Data The individual data for members of the PABF as of the valuation date were reported to the actuary by the Employes Retirement System (ERS). While we did not verify the data at their source, we did perform tests for internal consistency and reasonability. The amount of assets in the trust fund taken into account in the valuation was based on statements prepared for us by the ERS. Financing Objective and Employer Contribution The results of the January 1, 2014 valuation determine the employer contribution for the year ending December 31, Based on the provisions of Chapter 35, the annual contribution consists of an amount sufficient to amortize the unfunded actuarial liability (the amount by which the actuarial liability exceeds the assets on the valuation date) over a ten-year period with a series of level dollar payments; plus budgeted administrative expenses for the year. On this basis, the contribution for the 2014 plan year, to be paid January 31, 2015, would amount to $207,199, plus budgeted administrative expenses for the year. 123 North Wacker Drive, Suite 1000 Chicago, IL (fax)

3 Annuity and Pension Board Employes Retirement System of the City of Milwaukee June 17, 2014 Page 2 Financial Results and Membership Data Detailed summaries of the financial results of the valuation, including a 20-year projection of assets, liabilities, benefit payments and contribution requirements (excluding future administrative expense requirements), and of the membership data used in preparing the valuation are shown in the valuation report. As shown in Table 3, the Fund is projected to become insolvent sometime in 2015, which is in concurrence with the insolvency date determined in the January 1, 2013 actuarial valuation. It is not uncommon for a fund that is closed to new entrants where a large percentage of the assets are paid out in benefits to become insolvent before all benefit payments are made. That is the case for the PABF. For PABF, the insolvency was exacerbated by the downturn in asset values during calendar year Consideration could be given to reviewing the current funding policy to ensure that it is still in line with the Board s funding and solvency objectives. Given the small magnitude of the benefit payments to be made after the projected insolvency date in 2015, it would not be unreasonable to consider allowing the plan sponsor to fund the plan as benefit payments come due. To the best of our knowledge, this report is complete and accurate and has been prepared in accordance with generally accepted actuarial principles and practice. Respectfully submitted, Larry Langer, A.S.A., E.A., M.A.A.A. Principal, Consulting Actuary Kevin (Chih Hung) Peng, ASA, EA, MAAA Consultant, Retirement Patryk Tabernacki Associate, Retirement LL/KP/PT:pl 12736/C8253RET PABF.doc

4 Page 1 Introduction The law governing the Policemen s Annuity and Benefit Fund (PABF) requires the Actuary, as the technical advisor to the Annuity and Pension Board, to make an annual valuation of the funds and liabilities of the Fund, and to determine and certify the annual contribution to be derived from the tax levy. {Chapter 35, Part 1(12)}. Buck Consultants, as Actuary, has completed the annual actuarial valuation of the System as of January 1, In this report we present the results of the January 1, 2014 valuation and the contribution to be derived from the tax levy for the year ending December 31, For purposes of disclosure, the report also includes the schedule of employer contributions and schedule of funding progress as required by GASB Statement No. 25. only to be used for comparison of relevant Statement No. 67 information. The benefit provisions recognized in this valuation are those in place as of the valuation date. The valuation was completed based upon membership and financial data provided by the administrative staff of the System. The mortality and investment return assumptions used to prepare the valuation were adopted as of January 1, 2013, and are based on the experience study prepared by the Actuary and approved by the Board for the City of Milwaukee Employes Retirement System for the five-year period ended December 31, The actuarial asset valuation method was adopted as of January 1, Changes Since Last Year There were no changes in actuarial assumptions and methods or plan provisions since the prior valuation.

5 Page 2 Summary of Principal Results Summarized below are the principal financial results for the Policeman s Annuity and Benefit Fund of Milwaukee based upon the actuarial valuation as of January 1, Comparable results from the January 1, 2013 valuation are also shown. Item January 1, 2014 January 1, 2013 Number of Participants Active Members 0 0 Annuitants Widow Annuitants Total Number of Participants Benefits Paid in the Prior Year $ 589,196 $715,206 Asset Values (includes contributions receivable) Actuarial Value $ 412,093 $650,910 Market Value $ 412,093 $650,910 Actuarially Determined Employer Contribution Due 1/31/2015 Due 1/31/2014 Annual Cost* $ 207,199 $227,796 As % of Prior Year Benefits Paid 35.17% 31.85% *Plus budgeted administrative expenses Funded Status Accrued Liability $ 1,777,824 $2,152,402 Actuarial (and Market) Value of Assets 412, ,910 Unfunded (Overfunded) Accrued Liability $ 1,365,731 $1,501,492 Funded Ratio Based on Actuarial Value of Assets 23.2% 30.2% Reasons for Change in the Funded Ratio The funded ratio decreased from 30.2% as of January 1, 2013 to 23.2% as of January 1, The funded ratio was expected to decrease from 30.2% to 19.2% as of January 1, 2014 based on the results of the January 1, 2013 actuarial valuation. Favorable participant mortality experience in the form of more benefits being payable as of January 1, 2014 decreased the funded ratio from 19.2% to 18.7%. Asset experience in the form of actual returns of 31.79%, which was higher than the assumed return of 8.25%, then increased the funded ratio from 18.7% to 23.2%.

6 Page 3 Table 1 Summary of Market Value of Plan Assets As of January 1, 2014 (in dollars) Item Amount 1. Market Value of Assets as of January 1, 2013 $ 650, Contributions During Year a. Member - b. Administrative Expenses 19,708 c. Tax Levy (receivable 1/31/2014) 230,657 d. Total 250, Disbursements During Year a. Benefit Payments and Refunds During Year 589,196 b. Admimistrative Expenses 19,708 c. Total 608, Investment Return a. Net Appreciation, Interest and Dividends 119, Market Value of Assets as of 1/1/2014 (Unaudited) (1) + (2d) - (3c) + (4) $ 412, Net Rate of Return a. Actual 31.79% b. Expected 8.25% c. Rate of Return Greater Than / (Less Than) Expected (a - b) 23.54% d. Dollar Amount of Gain / (Loss) on Assets $ 89,846

7 Page 4 GASB No. 25 Disclosure Statement Number 25 of the Governmental Accounting Standards Board established reporting standards for the annual financial reports of defined benefit pension plans. The standards applied to the PABF effective with the January 1, 1997 valuation. The statement requires disclosure of the schedule of funding progress and the schedule of employer contributions in the System s financial statements. Statement No. 25 is no longer applicable beginning with the January 1, 2014 valuation and will be replaced by Statement No. 67. Any results displayed throughout this report with reference to Statement No. 25 are strictly for comparison purposes for any relevant Statement No. 67 results. The Schedule of Funding Progress (Table 2) shows historical trend information about the Fund s actuarial value of assets, the actuarial accrued liability and the unfunded actuarial accrued liability. The actuarial funded status is measured by comparing the actuarial value of assets (based on market value) with the accrued liability. The accrued liability is the present value of benefits accumulated to date under the PABF s funding method. On this basis, the PABF s funded ratio is 23.2% as of January 1, The funded ratio is based on an actuarial value of assets of $412,093 including a $227,796 receivable contribution for the 2013 plan year, and an accrued liability of $1,777,824. The Schedule of Employer Contributions (Table 2) shows historical trend information about the actuarially required contributions (ARC) of the employer and the percentage of the ARC contributed to the System. The Fund s ARC is equal to the amortization of the unfunded actuarial accrued liability. The maximum period for amortizing the unfunded actuarial accrued liability permitted by GASB No. 25 is 30 years, and the ten-year level dollar amortization required by Chapter 35 Part 1(12) meets this standard. The employer contributions to the System are equal to 100% of the ARC.

8 Page 5 Table 2 GASB Statement No. 25 Disclosure Schedule of Funding Progress Valuation as of January 1 Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL) Unfunded AAL (UAAL) (a-aal) Funded Ratio (a/aal) Annuity Payroll (b) UAAL as a Percentage of Annuity Payroll (UAAL / b) 2014 $ 412,093 $1,777,824 $1,365, % $ 589, % 2013 $ 650,910 $2,152,402 $1,501, % $ 715, % 2012 $1,007,534 $2,451,276 $1,443, % $ 765, % 2011 $1,584,173 $2,945,917 $1,361, % $ 894, % 2010 $1,935,745 $3,686,621 $1,750, % $1,049, % Schedule of Employer Contributions Fiscal Year Ended Actuarially Required Percentage Contributed December 31 Contribution (ARC) 2013 $227, % 2012 $221, % 2011 $208, % 2010 $268, % 2009 $329, % The information presented in the Schedule of Employer Contributions was determined as part of the actuarial valuation as of one year prior to the dates indicated (i.e., the contribution determined by the valuation completed as of January 1, 2013 was contributed for the fiscal year ending December 31, 2013). Additional information as of the latest actuarial valuation follows: Valuation Date: January 1, 2014 Actuarial Cost Method: Projected Unit Credit Amortization Method: Open; Level dollar Remaining Amortization Period: 10 years Asset Valuation Method: Market Value Actuarial Assumptions: Investment Rate of Return 8.50% return for calendar years 2000 through 2012, 8.25% for calendar years 2013 through 2017, and 8.50% beginning with calendar year 2018 Projected Salary Increases N/A Inflation Assumption 3.0%

9 Page 6 Table 3 POLICEMEN'S ANNUITY AND BENEFIT FUND PROJECTION OF ACTUARIAL LIABILITY AND ASSETS FROM JANUARY 1, 2014 TO DECEMBER 31, 2033 BASED ON ROLLING 10-YEAR LEVEL DOLLAR AMORTIZATION OF UNFUNDED ACTUARIAL LIABILITY AND 8.25% %* PER ANNUM INVESTMENT RETURNS (A) (B) (C) (D) (E) (F) (G) Calendar Beg.-of-Year BOY Unfunded Expected Benefit Investment Contribution End-of-Year Year (BOY) Actuarial Actuarial Liability Payments Earnings at Receivable Assets Assets Liability (B) - (A) 8.25% Jan 31 Next Year (A) - (D) + (E) + (F) 2014 $ 412,093 $ 1,777,824 $ 1,365,731 $ 488,756 $ 12,612 $ 207,199 $ 143, ,148 1,415,977 1,272, ,943 (6,000) $ 193,105 (73,690) 2016 (73,690) 1,112,520 1,186, ,810 (20,710) $ 179,964 (242,246) 2017 (242,246) 863,239 1,105, ,639 (31,847) $ 167,717 (368,015) 2018 (368,015) 662,238 1,030, ,779 (39,877) $ 156,303 (457,368) 2019 (457,368) 502, , ,771 (45,307) $ 145,666 (516,780) 2020 (516,780) 378, , ,625 (48,631) $ 135,753 (552,283) 2021 (552,283) 281, ,908 93,171 (50,298) $ 126,515 (569,237) 2022 (569,237) 207, ,158 70,174 (50,701) $ 117,905 (572,207) 2023 (572,207) 152, ,270 52,428 (50,167) $ 109,881 (564,921) 2024 (564,921) 110, ,981 38,773 (48,957) $ 102,404 (550,247) 2025 (550,247) 78, ,046 28,394 (47,273) $ 95,435 (530,479) 2026 (530,479) 55, ,237 20,523 (45,275) $ 88,940 (507,337) 2027 (507,337) 39, ,342 14,716 (43,084) $ 82,887 (482,250) 2028 (482,250) 26, ,162 10,479 (40,800) $ 77,247 (456,282) 2029 (456,282) 18, ,512 7,254 (38,487) $ 71,990 (430,033) 2030 (430,033) 12, ,220 4,954 (36,191) $ 67,091 (404,087) 2031 (404,087) 8, ,125 3,364 (33,951) $ 62,525 (378,877) 2032 (378,877) 5, ,078 2,246 (31,794) $ 58,270 (354,647) 2033 (354,647) 3, ,940 1,433 (29,732) $ 54,304 (331,508) * The interest rate is 8.25% for calender years 2013 through 2017 and 8.50% beginning with calender year 2018.

10 DESCRIPTION OF ACTUARIAL METHODS AND ASSUMPTIONS Page 7 Actuarial Cost Method The method of financing the System is prescribed in Chapter 35, Part 1(12) of the Milwaukee City Charter. Method: Projected Unit Credit Since the Fund is closed to new participants and all participants are retired, the Actuarial Accrued Liability (AAL) is equal to the Actuarial Present Value of benefits expected to be paid to and on behalf of current Annuitants and Widow Annuitants. The Unfunded Actuarial Accrued Liability (UAAL) is the difference between the AAL and the Actuarial Value of Assets. Based on the provisions of Chapter 35, the annual contribution consists of an amount sufficient to amortize the UAAL over a ten-year period with a series of level dollar payments, plus budgeted administrative expenses for the year. This funding method was adopted effective January 1, Actuarial Value of Assets The market value of assets is the value of investments if they were to be sold currently, plus the contribution receivable for the plan year just ended. The actuarial value of assets is equal to the market value of assets. This definition of the actuarial value of assets was adopted in 2005.

11 Page 8 Actuarial Assumptions Adopted Effective January 1, 2013 Interest Rate and Inflation Interest: 8.50% return for calendar years 2000 through 2012, 8.25% for calendar years 2013 through 2017, and 8.50% beginning with calendar year 2018 (adopted 1/1/2013) Inflation: 3.0% per annum Post-Retirement Mortality Male and Female: RP-2000 Combined Mortality Table with nine years of projected improvements, include full generational projection using mortality improvement Scale AA.

12 Page 9 Table 4 POLICEMEN'S ANNUITY AND BENEFIT FUND THE NUMBER AND ANNUAL BENEFITS PAYABLE TO ANNUITANTS AND WIDOWS AS OF JANUARY 1, 2014 Annuitants Widows Totals Age Number Annuities Number Annuities Number Annuities , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,155 Total 13 $ 256, $ 277, $ 533,108